EXPLAINER: Staking – One Clever Way to Earn Passive Income from Your Crypto Holdings

Many long-term crypto holders look at staking as a way of making their assets work for them by generating rewards rather than collecting dust in their crypto wallets.

Staking is the way many cryptocurrencies verify their transactions and it allows participants to earn rewards on their holdings. By staking your crypto, you commit the assets to support a blockchain network and confirm transactions.

It is, however, only available with cryptocurrencies that use the Proof-of-stake (PoS) model to process payments. This is a more energy-efficient alternative to the Proof-of-Work (PoW) model which requires mining devices that use computing power to solve mathematical equations.

Staking can be a great way to use your crypto to generate passive income especially because some cryptocurrencies offer high interest rates for staking.

Benefits of staking crypto

Here are the benefits of staking crypto:

  • It’s an easy way to earn interest on your cryptocurrency holdings
  • You don’t need any equipment for crypto staking like you would for crypto mining
  • You’re helping to maintain the security and efficiency of the blockchain
  • It’s more environmentally friendly than crypto mining

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SEE ALSO: 4 Easy Ways on How to Grow your Crypto Investment

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Risks of Staking Crypto

There are a few risks of staking crypto you should know about:

  • Crypto prices are volatile and can drop quickly. If your staked assets suffer a large price drop, that could outweigh any interest you earn on them
  • Staking can require that you lock up your coins for a minimum amount of time. During that period, you’re unable to do anything with your staked assets such as selling them
  • When you want to unstake your crypto, there may be an unstaking period of seven days or longer

The simplest way to stake your crypto is to use an online service to stake your tokens for you. Some popular cryptocurrency exchanges offer staking in exchange for commissions (APY) ranging from 1% to 10%. Some of the popular cryptos that you can stake include:

  • Ethereum ($ETH)
  • Cardano ($ADA)
  • Solana ($SOL)
  • Tezos ($XTZ)

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RECOMMENDED READING: How to Select a Cryptocurrency to Trade

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